The Income Tax Appellate Tribunal (ITAT), Delhi Bench, recently delivered a significant decision concerning the treatment of delayed payments towards Provident Fund (PF) and Employees State Insurance (ESI) in the case between Stallion Security, New Delhi, and DCIT, CPC, Bengaluru for the assessment year 2017-18.
Stallion Security, a partnership firm, faced a disallowance of Rs. 9,77,173 as deductions claimed for employee contributions to PF and ESI were not made within the prescribed due dates as per the relevant acts and rules. The case arose from an order dated July 27, 2021, by the National Faceless Appeal Centre (NFAC), which upheld the disallowance made by the Centralised Processing Centre (CPC).
The primary legal contention was whether the amendments to section 36(1)(va) and section 43B of the Income Tax Act, inserted by the Finance Act 2021, applied retrospectively or prospectively. The CPC applied these amendments retrospectively, leading to the disallowance of deductions for the delayed payments.
The Tribunal, presided over by Shri Saktijit Dey, Judicial Member, noted that the amendments should apply prospectively from the assessment year 2021-22 onwards. It relied on the coordinate bench’s decision in Mr. Vansh Jain vs. DCIT and similar precedents, which advocated for the allowance of such deductions if the payments were made before the due date of filing the return of income under section 139(1) of the Act.
The Tribunal disagreed with the Commissioner of Appeals’ interpretation that the amendments were clarificatory and had retrospective effect. It emphasized that legislative changes impacting taxpayers’ liabilities should be applied prospectively unless explicitly stated otherwise.
The ITAT allowed the appeal of Stallion Security, deleting the disallowance and setting a precedent on the non-retroactive application of statutory amendments affecting deductions for employee contributions to welfare funds. This decision is pivotal for employers and acts as a guiding case for handling similar disputes in the future.
The case of Stallion Security vs. DCIT highlights the importance of the timely payment of statutory dues and the potential complexities arising from legislative amendments. The ITAT’s decision underscores the need for clarity in the application of tax laws and the protection of taxpayer rights against retrospective changes.
The final order was pronounced openly in court on January 21, 2022, marking a significant outcome for Stallion Security and similar cases across India.
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